Difference Between Gross Profit and Net Profit

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 28, 2021

Gross profit of any business determines through Trading Account and the net profit determines through Profit and Loss Account. Below is the difference between gross profit and net profit.

Gross Profit

Net Profit

It is ascertained through Trading Account. It is ascertained through Profit and Loss Account.
It is the gross result of the business activities. It is the net result of the business activities.
The excess of net sales over net cost of purchase or manufacture (including all relating expenses to purchase or manufacturer), is known as gross profit. The excess of gross profit overall expenses relating to sales and administration of business is known as net profit.
It is not true profit or business. It is the true profit of a business.
It is transferred to the Profit and Loss Account. It is transferred to Capital Account in case of sole proprietorship and to Profit and Loss Appropriation account in case of partnership firm and Joint Stock Company.
It indicates credit balance of Trading Account. It refers to credit balance of Profit and Loss Account.
The progress of business can be measured by the percentage of gross profit on sales. The earning capacity of business can be measured by the percentage of net profit on capital employed.
The owner of the business has no claim over it. The owner has full claim over it.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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